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Sometimes a stock experiencing a slow, steady climb higher is exactly what you want in your portfolio. Coca-Cola (NYSE: KO) fits that description nicely as the stock has formed a trend channel over the last eight months.
Coca-Cola stock appeared on my bullish scan Tuesday night and there were a number of other consumer staples names on the bullish list that evening. Seeing so many consumer staples names on the bullish list could be the sign of a sector rotation as we head in to summer. Since the Feb. 11 low, consumer staples, utilities and healthcare have lagged the other sectors.
As for Coca-Cola itself, looking at the daily chart we see the trend channel I mentioned earlier and we see that the stock is just above the lower rail of the channel. We also see that the daily stochastic readings just made a bullish crossover after reaching their lowest levels since August. I also took note of how Coca-Cola stock has performed each time the stochastic readings have gotten down near 10. We see it happened in August and again in January, but notice how the stock rallied almost 15% for the next two to three months.
On the weekly chart we see the lower rail of the trend channel, but I also took note of how the $43 level could come in to play as support should the trendline be broken. This area acted as resistance in the fourth quarter of 2014 and again in the fourth quarter of 2015. Notice how the dip in April was halted just under the $43 level? This gives the stock two layers of support.
The sentiment toward Coca-Cola shows somewhat of an indifference toward the stock. The short interest ratio is just above two, but the analysts are anything but excited about Coca-Cola stock. There are 25 analysts following the stock with 12 ratings it a “buy,” another 12 rating it as a “hold” and one analyst rates the stock as a “sell.”
I know Coca-Cola isn’t the sexiest sounding investment, but that may what you need right now as we head in to the summer months. Between the chart pattern and the indifference in sentiment, Coke looks like it should stay on its current path, which is a steady climb. Another factor to consider with Coca-Cola is the dividend, which is currently yielding 3.18%.
I would look to buy Coca-Cola stock at its current level and look to hold it for at least two to three months. If the pattern in the stochastic readings plays out again, you should be looking at a 14 to 15 percent gain by the end of July. You will also pick up Coca-Cola’s quarterly dividend payment in mid-June which will add to your total return. Should the stock drop down to the $42 level, I would look to get out.